Proposed Federal Income Tax Brackets

                                             PROJECTED TAX BRACKETS 2011
                                             (To be adjusted for inflation every year)
                                                                                                                        % of
Income                           Rate        $ Tax in Bracket           Total Tax $        Total Income        

Up to $20,000                0%                 $0                              $0                            0%
$20,001-$50,000          2.5%             $750                          $750                       1.50%
$50,001-$75,000          5.0%            $1250                        $2000                      2.67%
$75,001-$100,000        7.5%            $1875                        $3875                      3.88%
$100,000-and up          10.0%                                                                           
$100,001-$1,000,000   10.0%          $90,000                    $93,875                    9.39%
                   



This is a progressive tax rate, with higher incomes taxed at a higher rate than lower incomes, but it does max out at 10%.  I believe the total tax burden to an individual (including federal income, state income, local, and property taxes) should not be more than 20%, in order to act as an incentive to achievement.

This 20% (derived from 80/20 Land of Plenty) does not include business taxes, FICA taxes, and Medicare taxes, which will be discussed later on.

As stated in the overview, politicians should only be allowed to increase the tax rates only in an emergency for stated, specific purposes.  The increase would require a 60% majority and would automatically expire in a maximum of two years, if it is not re-approved with the 60% majority.

These tax rates would apply to ALL sources of income, including such controversial ones as proceeds from the sale of a house, social security income, and inheritance proceeds.

Tax withholding should be done from all sources of income, including interest, dividends, capital gains, etc., as well as from salaries.  Individuals could request what percentage to withhold (similar to exemptions claimed in the current tax system) from 1% to 10%.  On unusually large, infrequent transactions such as the proceeds of a sale of a house, individuals could choose to withhold up to 15%, to avoid getting hit with a large tax bill on their normal income at the end of the year.

One may wonder where the money needed to run the federal government will come from if the maximum individual tax rate is 10%.  First off, nobody pays the maximum rate on all of their income under the current system.  You cannot compare a rate that is not being paid to a rate that will be paid, although I concede that individuals will pay less under my tax proposal.  The difference will be made up (1) by eliminating tax exemptions and deductions and (2) with a business (or sales?) tax discussed in the next post.

Under these tax brackets, a family where the primary wage earner earns $50,000 and the spouse earns $20,000 will have a total federal income tax burden of $750.00 ($750 for the primary and $0 for the secondary).




Under the 2010 tax brackets, the couple mentioned above, filing jointly with 2 exemptions and using the standard deduction, would have a tax burden of $6,651.00.  The savings to this couple would be huge.

But, there will be additional money coming in to the federal government from the proposed business (sales?) tax discussed in the next post.  Some of the savings this couple received will be affected by the business tax.